1999 (10) TMI 755 - AT - Income Tax

Tribunal favors assessee in tax appeal, emphasizes liberal interpretation of incentive provisions

The Tribunal allowed the appeal in favor of the assessee, setting aside the CIT(A)'s order and restoring that of the Assessing Officer. It emphasized the ... - Issues:- Discrepancy in creation of reserve under section 80HHC- Interpretation of second proviso to section 80HHC- Applicability of Board's Circular No. 259 dated 11-7-1979- Consideration of additional reserves in subsequent years- Statutory option of filing a revised return under section 139(5)Discrepancy in creation of reserve under section 80HHC:The appeal was against the order of the CIT(A) for the assessment year 1987-88 regarding a shortfall in the creation of a reserve under section 80HHC. The assessee claimed a deduction under section 80HHC, but the reserve created was less than the claimed amount. The Assessing Officer allowed the deduction but later requested withdrawal of the excess amount due to the shortfall in the reserve. The CIT(A) upheld the request, leading to the appeal.Interpretation of second proviso to section 80HHC:The second proviso to section 80HHC required the assessee to create a reserve equal to the deduction claimed. The CIT(A) rejected the assessee's contention that creating an additional reserve in the subsequent year fulfilled the requirement. The CIT(A) held that the deduction should be restricted to the amount of the reserve created, leading to the reduction of the deduction amount.Applicability of Board's Circular No. 259 dated 11-7-1979:The assessee relied on Board's Circular No. 259 dated 11-7-1979 regarding the creation of additional reserves for development rebate purposes. However, the CIT(A) found this reliance misplaced as the provisions of development rebate and investment allowance were different from those of section 80HHC(1).Consideration of additional reserves in subsequent years:The Tribunal considered cases where opportunities were given to create additional reserves in subsequent years to meet statutory requirements. It was argued that the assessee should be allowed to create the reserve even in subsequent years to comply with the provisions. The Tribunal noted that the creation of a reserve in subsequent years could be a valid method to rectify any shortfall in compliance.Statutory option of filing a revised return under section 139(5):The Tribunal emphasized the importance of the statutory option of filing a revised return under section 139(5) in cases where the assessee needed to correct the claimed deduction under section 80HHC. The Tribunal highlighted that restricting the opportunity to rectify the reserve shortfall could hinder the assessee's ability to revise the claim accurately.In conclusion, the Tribunal set aside the CIT(A)'s order and restored that of the Assessing Officer, allowing the appeal in favor of the assessee. The Tribunal emphasized the need for a liberal interpretation of incentive provisions like section 80HHC and reconciled the statutory option of filing a revised return with the requirement of creating reserves under the relevant provisions.